21 Oct 2026
A firm is included in a carbon emissions trading system. Conventional logic suggests it should disclose its environmental performance more actively – after all, the essence of a market mechanism is "the more you emit, the more you pay." Yet in reality, corporate responses are far from uniform. Some firms do expand their disclosure scope; others stop at the bare minimum; and some leave environmental disclosure unchanged while increasing their social disclosure.
Why do firms respond so differently to the same carbon market policy? A study published in the “Journal of Operations Management”, a top-tier journal in operations management – by Professor Lujie Chen of International Business School Suzhou (IBSS) at Xi'an Jiaotong-Liverpool University and her collaborators, titled "Impact of Carbon Emission Trading Schemes on Firms' Environmental and Social Disclosure Under Institutional Pressure", sheds light on this question. Based on 16,348 firm-year observations from 1,682 Chinese listed companies between 2010 and 2024, and using the staggered rollout of regional carbon trading pilots as a quasi‑natural experiment, the study reveals how institutional pressure shapes corporate disclosure behaviour through two distinct pathways.
Mandatory participants: using social disclosure to "compensate" for insufficient environmental disclosure
For firms required to participate in the carbon market, the study finds an intriguing pattern: the carbon trading scheme has no significant effect on their environmental disclosure, but has a modest positive effect on social disclosure. The researchers interpret this as a “legitimacy compensation mechanism” – when firms face intense environmental compliance pressure, they may choose to increase disclosure in another area that is equally scrutinised but relatively less sensitive (such as employee welfare, community relations, and other social issues) to maintain their overall image. In short: if environmental performance is difficult to improve or report on, firms may choose to talk more about what they do for their employees.
This finding reveals a potential limitation of mandatory regulation: institutional pressure may drive firms toward "conspicuous effort" rather than "substantive change."
Voluntary participants: using disclosure as a strategic signal
In contrast, for firms that are not mandatorily included but choose to participate in carbon trading voluntarily, the implementation of the carbon trading scheme significantly increases both environmental and social disclosure. These firms are not simply responding to regulation; they use broader sustainability disclosure as a strategic signal to the market, communicating their commitment to environmental responsibility and organisational leadership. In other words, when participation in the carbon market is a matter of "I choose to" rather than "I have to," firms are more likely to treat disclosure as a tool for building reputation rather than merely fulfilling a compliance obligation.
How internal conditions "amplify" or "offset" policy effects
The study further reveals that, even when facing the same carbon market pressure, firms' internal conditions influence how they respond.
Operational efficiency acts as an "offsetter". For firms with high operational efficiency, the carbon trading scheme's positive effect on disclosure is actually weakened. The reason is that efficiently run firms often view broader disclosure as a potential competitive risk – more extensive disclosure may expose strategic information such as supply chain arrangements and cost structures. From their perspective, "saying too much" may be more dangerous than "saying too little."
Management environmental attention acts as an "amplifier". When senior management teams place greater importance on environmental issues, carbon market pressure translates more effectively into broader environmental disclosure, while also boosting social disclosure. Human factors remain a critical variable in whether regulations are effectively implemented.
Implications for managers
Firms covered by mandatory carbon markets should avoid over‑relying on social disclosure to "compensate" for insufficient environmental disclosure. Instead, they should strengthen environmental reporting by building carbon data systems, improving monitoring capabilities, and enhancing reporting infrastructure. Firms with a strong focus on operational efficiency should also ensure that cost and process optimisation do not crowd out transparency goals. Incorporating green key performance indicators (KPIs), environmental strategy training, and clear sustainability responsibilities into executive performance reviews can help maintain a balance between efficiency and transparency.
Implications for policymakers
Policy design should combine mandatory requirements with mechanisms that encourage voluntary participation. Voluntary participation can complement mandatory regulation by encouraging firms to treat sustainability disclosure as a strategic activity rather than merely a compliance obligation.
Professor Lujie Chen notes: "Carbon markets can drive emission reductions, but they do not necessarily drive transparency. Institutional pressure can change behaviour, but it does not necessarily change intent. Mandatory and voluntary instruments must be used in combination to make firms both act and tell the truth."
About Professor Lujie Chen
Lujie Chen is a Professor of Management at International Business School Suzhou, Xi’an Jiaotong-Liverpool University. Professor Chen was included in the Elsevier-Stanford University World's Top 2% Scientists list in both 2024 and 2025. She is a Fellow of the Higher Education Academy in the UK and an expert in supply chain management and business analytics.
Professor Chen has published more than 60 papers in top-ranking journals such as the Journal of Operations Management (UTD 24), Harvard Business Review (FT50), International Journal of Operations and Production Management (ABS 4), British Journal of Management (ABS 4), and European Journal of Operational Research (ABS 4), among others. She has served as a guest editor for special issues of several respected journals such as International Journal of Operations and Production Management, Industrial Marketing Management, International Journal of Production Economics, and Journal of Business Research. She is currently serving as an Associate Editor for the International Journal of Operations and Production Management (ABS 4) and department editor for IEEE TEM (ABS 3) and editorial board for Humanities and Social Sciences Communications (Nature Portfolio, CAS Humanities Q1 & JCR Q1).
About the journal
The Journal of Operations Management is a top-tier international journal in the fields of operations and supply chain management. It is one of the UTD24 journals (the 24 journals used by the University of Texas at Dallas to rank global business school research performance) and one of the FT50 journals (the Financial Times' 50 top journals). Rated as a 4-star journal in the ABS Academic Journal Guide, it is dedicated to publishing high-quality research with significant theoretical contributions and practical impact in operations management.
21 Oct 2026